Bitcoin’s Emergent Properties

Bitcoin as a complex digital organism — DALL-E

Bitcoin as Digital Organism

In a 2016 paper outlining a futuristic vision of U.S. democracy transformed into a “decentralized autonomous organization” (DAO) better capable of meeting its citizens needs, Ralph Merkle describes Bitcoin as a new form of life.¹ Merkle, a pioneer and legend in the fields of computer science and cryptography, poetically proclaims:

“Briefly, and non-technically, Bitcoin is the first example of a new form of life. It lives and breathes on the internet. It lives because it can pay people to keep it alive. It lives because it performs a useful service that people will pay it to perform. It lives because anyone, anywhere, can run a copy of its code. It lives because all the running copies are constantly talking to each other…”

While Merkle is clearly embracing dramatic metaphor to make a point, this framing becomes useful when considering a perspective highlighted in Carlos Gershenson’s Emergence in Artificial Life. ² We may not be able to draw a sharp distinction between living and nonliving entities. Instead, any system’s level of aliveness exists on a spectrum and can be measured by the extent to which its information is produced more by itself than by its environment. From this perspective, Bitcoin can be viewed as an emergent digital life form.

But we don’t need to make this leap for key concepts from the paper to be useful. One of the essay’s core arguments is that information can be used to describe everything we perceive. Information serves as a conceptual bridge between physical and nonphysical phenomena.

Gershenson proposes an information-theoretic definition of emergence that can be used to reason about two of Bitcoin’s most important properties — trust and value. Usefully applying this definition requires expanding our focus from “bitcoin” the digital currency, to “Bitcoin” the open-source protocol, decentralized financial network, and complex socioeconomic system.³⁴

Emergence in Bitcoin: Trust and Value

Gershenson defines emergence as “information that is not present at one scale but present at another.” He elaborates that “any novel information produced at the macro-scale is emergent.” While a formal mathematical definition is provided, we will focus on this informal verbal definition. With this definition in mind, we can examine claims in The Emergence of Trust and Value in Public Blockchain Networks, where the authors argue that blockchain networks such as Bitcoin are complex systems because they possess two emergent properties that only manifest at a system level — trust and value.⁵

Trust

Trust is an emergent property of Bitcoin because it is a decentralized network made up of individuals who choose to run “nodes.” Examining a single node at the micro level does not reveal any notion of trust. Trust as a property of the system arises only after groups of nodes interact with each other to reach consensus about the “true” state of the ledger. Since trust in the decentralized ledger is only observable as a macro property of the system of interconnected nodes, it is reasonable to claim that trust is an emergent property.

Value

Gershenson highlights the important fact that “the value of money is not physical but informational.” Bitcoin’s value isn’t found within nodes, or even directly within the blockchain itself. Value emerges as a result of how different agents perceive and interact with Bitcoin. Because there is a limited supply of 21 million bitcoin tokens, the only variable to consider when assessing its economic valuation is demand. Demand for bitcoin is derived from emergent properties not found in any micro level entity such as trustworthiness of the blockchain, liquidity, and transparent decentralization. Value, a direct function of demand, is an emergent property arising from the behavior of Bitcoin as a complex system.

Research Directions

Bitcoin has been proclaimed dead over 400 times since 2010.⁶ Yet, by most empirical measures, its electronic heart still beats. Gershenson’s work suggests three promising avenues for research on Bitcoin and public blockchains.

1. Applying Gershenson’s formal mathematical definition of emergence to data from blockchains

2. Identifying other emergent properties in blockchains such as replication and homeostasis⁷

3. Building agent-based models to study emergent properties of blockchains⁸

1. Merkle, R. C. (n.d.). DAOs, Democracy and Governance. https://ralphmerkle.com/papers/DAOdemocracyDraft.pdf

2. Gershenson, C. (2023). Emergence in Artificial Life. Artificial Life, 29(2), 153–167. https://doi.org/10.1162/artl_a_00397

3. Nabilou, H., & School, A. P. of L. & F. at U. of A. L. (2021). Bitcoin Governance as a Decentralized Financial Market Infrastructure. Stanford Journal of Blockchain Law & Policy. https://stanford-jblp.pubpub.org/pub/bitcoin-governance/release/2

4. Voshmgir, S., & Zargham, M. (2020). Foundations of Cryptoeconomic Systems. https://research.wu.ac.at/en/publications/foundations-of-cryptoeconomic-systems-6

5. Norman, M., Karavas, Y., Reed, H., & Org. (2018). The Emergence of Trust and Value in Public Blockchain Networks. https://doi.org/10.13140/RG.2.2.26373.24801

6. Bitcoin Obituaries—"Bitcoin is Dead" Declared 400+ Times. (n.d.). Retrieved January 29, 2024, from https://99bitcoins.com/bitcoin-obituaries/

7. Abramov, O., Bebell, K. L., & Mojzsis, S. J. (2021). Emergent Bioanalogous Properties of Blockchain-based Distributed Systems. Origins of Life and Evolution of Biospheres, 51(2), 131–165. https://doi.org/10.1007/s11084-021-09608-1

8. Zargham, M., Nabben, K., Boneh, D. et al. (2023). Open Problems in DAOs (arXiv:2310.19201). arXiv. https://doi.org/10.48550/arXiv.2310.19201